Voluntary Administration May Save Your Business
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Voluntary Administration is a legal alternative to company liquidation and is appropriate for directors who believe their company is viable and worth saving.
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Voluntary Administration May Save Your Business
Voluntary Company Administration is a way in which an insolvent (or soon to become insolvent) company can restructure and compromise its debts so that the business can continue to trade and employ in the future.
A Voluntary Administration (usually lasts 28 – 35 days) and in this time, the voluntary administrator will take control of the company and its trading operations. Directors will usually provide assistance during this process.
While trading operations continue, directors will draft a proposal to be put to the creditors. Usually a proposal will provide for a better return to creditors than they would receive if the company was immediately placed into liquidation.
Once the proposal is finalised, it is sent to all creditors who then meet and vote on whether to accept it.
Voluntary Administration is most appropriate for companies with substantial assets.
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Possible Outcomes of a Voluntary Company Administration.
Once a proposal is finalised and sent to creditors, a meeting will be held and a vote taken as to whether:
- To accept the director’s proposal for the compromise of the debts; or
- To reject the proposal and place the Company into liquidation;
Creditors may also vote to return control of the company to the directors but this rarely occurs as the company is insolvent.
If creditors agree to the proposal, the company goes from Voluntary Administration to a Deed of Company Arrangement – this is where the company will attempt to fulfil the proposal. If creditors reject the proposal, the company will go into liquidation.
What Is the Role Of The Voluntary Administrator?
ndertake an investigation into the affairs of the company and to report to creditors the financial position of the company.
The administrator will also report upon the directors proposal and whether he believes the proposal is in the best interests of the creditors.
Usually the administrator will recommend a directors’ proposal if it provides for a greater return than creditors would otherwise receive in a liquidation.
The other role of the Voluntary Administrator is to report any breaches of the Corporations Act to the ASIC.
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What Types of Business does a Voluntary Administration suit?
A Voluntary Administration can be used for any type of business but it is best suited to companies with a substantial business, valuable assets or both.
Voluntary Administration may not be suitable to smaller companies where assets values are limited as the costs of the process can be prohibitive.
For smaller companies with lower value assets, there are other legal options available and you may contact us anytime to find out what they are.
How is a Voluntary Administration begun?
The process of appointing a Voluntary Administrator is usually commenced by a majority of directors making such an appointment.
The appointment can also be made by a secured creditor or a liquidator. When the administrator is appointed he will immediately take control of the company and its operations.
Following that, he will start his investigations and report to the creditors and invite them to the first meeting held within the first eight (8) business days.
After the first meeting, the administrator will then conduct a very detailed investigation into the problems of the company and its financial position.
He will also report to creditors on any proposal made by the directors and whether, in his opinion, the proposal should be accepted or whether the company should be liquidated.
The major report by the administrator calls a second meeting of creditors held at about day 30 – 35 of the administration period.
What happens at the two meetings of creditors
The first meeting of creditors that is held within 8 days of appointment is fairly basic and procedural in nature.
In this meeting, creditors decide:
- whether or not they wish to replace the current administrator and with whom
- whether the creditors wish to form a committee
- The second meeting of creditors is the most important. Creditors have now received the detailed report of the administrator and have had the opportunity of assessing the financial position of the company, the proposal of the directors and the likely return under both scenarios.
Creditors will then be asked to vote on the future of the company and specifically whether:
- To accept the director’s proposal and allow the company to enter into a Deed of Company Arrangement; or
- To vote for the liquidation of the company.
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